AdvisorShares Weekly Market Review – Week Ending 1/13/2017

Highlights of the Prior Week

Tweets & Press Conferences

Macro

Last week, President Elect Trump gave his first press conference, arguably it was explosive and of course he continued to Tweet prolifically. There were some market moving comments again, this time related to the healthcare sector and the manner in which the US “bids” on drug prices. There have been other sectors and industries that have previously drawn Trump’s attention with market moving results and it is likely this will continue although we would be glad if it stopped. Mark Yusko, CEO from Morgan Creek Capital opined that the comments on healthcare might have created an opportunity, specifically in biotech. We will neither agree nor disagree with Trump’s comments but where he can move markets it would be useful for advisors to get out in front of clients’ concerns about this issue.

Despite the volatile comments, domestic equity markets were not volatile. The Dow Jones Industrial Average fell 0.40%, the S&P 500 slid 0.11% while the NASDAQ gained 0.94% and the Russell 2000 tacked on 0.28%.

The financial sector garnered a lot of attention on Friday as several of the mega cap banks reported earnings that were generally favorable with the idea being that higher interest rates will help profitability. Financials are important in this regard as being the second largest sector in the S&P 500 and if the FOMC follows through with three rate hikes this year (a big if) then this could be a source of increasing earnings for the index. Ycharts currently reports an estimate of $122.60 for 2017 versus $105.83 in 2016. We mentioned last week the potential boost that the energy sector could get if oil stays close to $50. There are always bullish and bearish data points, the potential earnings boost would obviously be a potential positive.

Speaking of West Texas Intermediate Crude, it fell 2% to $53 and change but was able to rally in the back half of the week despite a bearish inventory number. Over the weekend the Barron’s Roundtable had several participants including Jeff Gundlach suggesting that it is time to move away from deflation trades and position for more inflation. This likely means including TIPS but can also include commodities. Gold was up 2% last week to $1200 and has been generally trending higher for the last month. Industrial commodities like zinc and copper took off after the election, eased back some in late December but have resumed higher in the new year.

One trade that has not resumed its post election trend has been interest rates. After the election the yield on the Ten Year US Treasury Note went “hockey stick” to a December 16th high at 2.6% but has since been moving lower, closing Friday at 2.38%. The US has diverged from the other sovereign issues we regularly follow here. The German bund and French OAT both traded lower in yield into mid-December and have been moving higher this year, closing Friday at 0.33% and 0.80% respectively. The UK gilt has moved up slightly to 1.36% while both the Swiss ten year and JGB have been in their own worlds. Mozambique will be defaulting on a $727 million sovereign debt issue which is due in January 2023. Bloomberg cites the country’s ability to make payments as “extremely limited.”

Just as the Trump win was supposed to be immediately bad for domestic equities, so too was a successful Brexit vote supposed to be bad for UK equities. While the FTSE 100 has had its ups and downs it is up more than 10% for the last six months and as something of an anomaly it had been up every day since December 22nd. That streak ended on Monday. In case you were wondering whether this might be a currency thing, the FTSE 100 contains a lot of multinationals that benefit from a weak pound, the Small Cap FTSE 250 is up roughly the same 10% over the same time period.

Emerging market equities had a decent 2016 but with a wide dispersion of returns. Smack in the middle last year was Turkey which has always been a politically challenging investment destination. For the year the benchmark Istanbul index was up low single digits despite the dollar rallying 30% against the lira in the last six months of the year. Turkey’s GDP grew at 3.3%, its ten year sovereign debt seems low at 5.9% and its inflation rate was 8.5%. Because of the decline in the lira, the ETF tracking the country was down 13% last year.

Now a weird year for the NFL just got weirder. If the Chargers do indeed move, and if owners approve the Raiders’ move to Vegas in March, three teams will have relocated in a 14-month span. There will be plenty of blame to go around. Goodell will be the face of it, but internally, owners and executives will wonder if NFL executive Eric Grubman, the point man on stadiums, did an effective enough job of negotiating with San Diego officials. The owners will be viewed as vessels of greed; Spanos will be the one who in the end decided to pull the plug on a cherished home, his legacy a sunburned version of Art Modell’s. But the lingering conflict goes beyond the relocations, beyond the logistics and into an area that is tougher to navigate if not solve, because there is no clear solution: What if the NFL simply matters less?

As a bonus, with his contract coming due, ESPN quoted Steph Curry as saying “If I’m complaining about $44 million over four years, then I’ve got other issues in my life.”

As for the sectors of the S&P 500, six outperformed the broad benchmark – Discretionary, Industrials, Financials, Utilities, Technology, and Materials. The remaining five – Telecom, Energy, Staples, Healthcare and Real Estate – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 2.50% for the week ending 1/13/17, with Discretionary outperforming all, and Real Estate coming in last.

The AlphaBaskets blog provides frequent market insight and commentary by AdvisorShares Investments, LLC, created by AdvisorShares and other leading active managers. AdvisorShares Investments is an SEC-registered investment adviser and the investment adviser to the AdvisorShares actively managed ETFs. The views expressed on AlphaBaskets should not be taken as investment advice or a recommendation for any of the actively managed ETFs advised by AdvisorShares.